By Jackson Lewis

The COBRA premium subsidy provisions of the federal stimulus package enacted in 2009 (American Recovery and Reinvestment Act of 2009 “ARRA”) have been extended by the Department of Defense Appropriations Act, 2010, which was signed into law on December 19, 2009 (the “Act”).  The Act extended the period to qualify for the COBRA premium reduction until February 28, 2010, and the maximum period for receiving the subsidy an additional six months (from nine to 15 months).

Extended Cobra Subsidy Program

The extended COBRA subsidy rules require employers to identify individuals who were “assistance eligible individuals” (AEIs), those who were eligible for assistance under the prior subsidy rules and who either:  

• elected to terminate coverage when their COBRA subsidy under ARRA expired, or
• continued their COBRA coverage when their ARRA subsidy eligibility ended by paying the full (unsubsidized) COBRA premium.

These individuals must be treated as eligible for the extended period of subsidized COBRA.

AEIs who terminated their COBRA coverage when their ARRA subsidy expired must be given the opportunity to elect additional subsidized COBRA coverage by paying the subsidized premium amount retroactive to the date that their ARRA subsidy expired.  The AEI must pay the reduced premium amount for the entire period beginning on the date that the ARRA premium expired through February 17, 2010 (or, if later, within 30 days of receiving a revised notice of their extended COBRA rights under the Act).

For AEIs who continued their COBRA coverage after they were no longer eligible for the ARRA subsidy by paying the full COBRA premium, the employer must reimburse the AEI for 65% of each premium that the AEI paid.  The employer can either make a reimbursement payment or provide a credit to the AEI to be applied against future premiums, provided that the credit can be exhausted within 180 days.

Notification Requirements

In order to comply with the extended subsidy provisions in the Act, employers will need to revise the COBRA notices that they currently provide to AEIs, to add information about the extended subsidy program.  Additionally, some AEIs who already have received COBRA notices must be provided supplemental notices containing information on the Act’s extended COBRA subsidy provisions.  Model Notices are available on the EBSA website at http://www.dol.gov/ebsa/COBRAmodelnotice.html.

The Act requires that plans notify certain current and former participants and qualified beneficiaries about the extension of the premium subsidy program.  The Department of Labor has created three separate model notices to assist employers and individuals:

1. The Updated General Notice (http://www.dol.gov/ebsa/COBRAgeneralnoticefullversion.doc) should be provided to participants and other qualified beneficiaries who experience a qualifying event between September 1, 2008, and February 28, 2010, and who have not been given a prior election notice.  General Notice must be provided within the time period provided in the COBRA regulations, and the qualified beneficiary has the full 60 days from the date of the notice to make a COBRA election.
2. The Premium Assistance Extension Notice (http://www.dol.gov/ebsa/COBRApremiumassistanceextensionnotice.doc), which provides information about the changes made to ARRA by the Act, and a revised election form must be provided to AEIs who were receiving COBRA premium assistance on October 31, 2009, whether or not they have continued to pay premiums after that date, and AEIs who experienced a qualifying event between October 1, 2009, and February 28, 2010, whether or not they received a COBRA election notice explaining the ARRA subsidy.  The Premium Assistance Notice must be provided no later than February 17, 2010, to all AEIs who were eligible for an ARRA subsidy as of October 31, 2009, or who terminated employment after October 31, 2009, and lost health care coverage (other than individuals in a “transition period,” as defined below).
   
   An individual’s “transition period” is the period that begins immediately after the end of the maximum number of months (usually nine months) of premium reduction available under ARRA prior to its extension by the Act.  An individual is in a transition period only if the premium reduction provisions would continue to apply due to the extension from nine to 15 months and they otherwise remain eligible for the premium subsidy.  Individuals in a transition period must receive the Premium Assistance Extension Notice within 60 days of the first day of the individual’s transition period.
    
3. The Updated Alternative Notice (http://www.dol.gov/ebsa/COBRAalternativenotice.doc) must be distributed by insurance providers to individuals who became eligible for continuation coverage under state law.

Possible Further Extension of the ARRA Subsidy

The President has requested extension of the premium subsidy program and the Senate is scheduled to take up the issue in the Jobs for Main Street Act of 2010.  Among other proposed changes, the Act would extend the eligible group of employees to those who lose their jobs through June 30, 2010.